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12-10-2013 JFC MIN City of ElkMeeting of the Elk River Finance Committee River Held at the Elk River City Hall Tuesday, December 10, 2013 Members Present: Nate Ovall, Cliff Lundberg,Paul Motin, and Larry Toth Members Absent: Chad Vitzhum and Dan Tveite Staff Present: Community Operations and Development-Deputy Director Jeremy Barnhart, Economic Development Intern Chanda Knoof Also Present: City Attorney Andrea McDowell Poehler and Financial Advisor Mikala Huot;Bill LaVigne, Chief Operating Officer,Bank of Elk River Representative I. Call Meeting to Order Pursuant to due call and notice thereof, the meeting of the Elk River Finance Committee was called to order at 7:20 a.m. by Jeremy Barnhart. 2. Consider 11/12/2013 Agenda Motion by Motin and seconded by Ovall to approve the December 10,2013, Finance Committee agenda. Motion carried 4-0. 3. Consent Agenda Moved by Motin and seconded by Toth to approve the minutes of the November 5 2013, Finance Committee meeting with the following correction: 2.1 —Paragraph 2 - Motin asked whether the Ethanol Technology's principles filed for bankruptcy. Motion carried 4-0. Motin stated he would like to remind the Finance Committee members of the open meeting law and that members should not email back and forth on issues. Lundberg disagreed; stating that he felt it was a matter of free speech and was his right under the Constitution of the United States. Ms. McDowell Poehler explained that case law clearly shows that this activity can be ruled a violation of open meeting law. Mr. Lundberg stated that if he has an opinion on an issue, he would like everyone to know about it. 4. Open Forum —No one appeared for Open Forum. Finance Committee Minutes Page 2 December 10,2013 5.I Ethanol Technology Default Ms. McDowell Poehler updated the committee members that Ethanol Technology's principles had not filed bankruptcy. She stated that the city's chance of collection may be improved if the other creditors have since "moved on". She stated that the city could take action if it received a direct assignment of the loan from the bank. Discussion followed regarding possible actions for collecting on the loan. It was the consensus of the committee to work with the bank to obtain assignment of the loan. If assignment is secured, the guarantors will be contacted for payment and this item will be brought before the EDA for final action. 5.2 Bank of Elk River Default Staff reviewed the reports collected from DEED and reports sent in from Economic Development staff regarding employment numbers. Bill LaVigne,representing The Bank of Elk River, stated that in December 2010, the bank had 76.5 full time employees,which reflects 13.49 additional employees. He noted that that this is the number from the downtown bank in relation to the project. Mr. LaVigne explained the confusion in tracking new jobs, since they move employees within the organization from other sites. He stated that if they bring an employee in from another location, a new hire would technically be at the location the employee came from, even though the downtown bank actually added another employee. Motin stated he would like to know where we go from here since the 20 jobs were not met. Mr. LaVigne stated that he was not sure why the agreement states 20 jobs at $15 per hour. Mr. LaVigne asked how the 20 jobs number was determined. Ms. McDowell Poehler stated that the number was based on the $300,000 subsidy. He stated that he realized the goal was to increase the economic base in the community and 20 jobs at$15/hour would generate $624,000/year in wages. Mr. LaVigne continued by stating that the 13.49 jobs had an average wage of$30.41/hour, generating$822,000,injecting more money into the economy than the 10 jobs at$15 per hour would have generated. Mr. LaVigne asked what is important the end result or how we got there. Motin stated that purpose of the program is to get better than living wages not just a few with larger wages. Ms. McDowell Poehler stated that wage and job goals are required by the state. Lundberg stated that he felt the agreement could be rewritten to reduce the number of jobs and then also the amount of subsidy. He stated that they need to take into consideration the extenuating circumstances of the financial crash. Ovall stated that SBA loans usually require one job per$35,000 in assistance. He questioned how they arrived at 20 jobs for$300,000 when only 9 jobs would be required in a SBA. P O I E R E O I NATURE Finance Committee Minutes Page 3 December 10,2013 Mr. LaVigne asked if it is possible to go back and look at the circumstances in 2010. He stated that they did not meet the goals the way they were drafted in the agreement, but he felt they did meet the intent of the goal in the agreement. He requested staff to have a conversation with the State regarding what actually happened to see if they would agree to accept an amendment or rewriting the agreement. Lundberg stated that if the agreement was rewritten, he suggested including a statement that the bank would indemnify the city against any fees that may be imposed by the state. He stated that the bank has only received 42% of the $300,000 and has met almost 70% of the goal. Motin stated his inclination would be to let the bank continue receiving the abatement up to the percentage the job goals met (approximately$210,000). He stated he had a concern from a policy point, as he would not want other businesses to think they did not necessarily have to meet their goals. He stated he would like to address this in the policy for future requests. Motin stated that the request to the State to amend the agreement should state the down turn in economy and the fact that banks were hit very hard as the extenuating circumstance as to why the Finance Committee amended the agreement. Motion by Lundberg and seconded by Motin to recommend the EDA amend the Tax Abatement Agreement with The Bank of Elk River to reduce the number of new full-time jobs required from 20 to 13,with a decrease in the tax abatement amount to reflect this reduction (approximately 65%). Toth stated that the motion should include that this reduction will only be made for this project. Motin stated that he would prefer to take some time to review the policy separate from this issue,rather than include in this motion. Motion by Lundberg and seconded by Motin to amend original motion to recommend the EDA amend the Tax Abatement Agreement with The Bank of Elk River to reduce the number of new full-time jobs required from 20 to 13,with a decrease in the tax abatement amount to correspondingly reflect this reduction (approximately 65 percent); and to include an indemnification clause that The Bank of Elk River will be responsible for any issues or fees the State may have. Mr. LaVigne stated that The Bank of Elk River has received a check every six months and asked if Ms. McDowell Poehler knew how the payment would be handled and if the payment would be prorated. Ms. McDowell Poehler stated she did not have that information at this time. Motion carried 4-0-1. Commissioner Ovall abstained. P—ONEDED BY NATURE Finance Committee Minutes Page 4 December 10,2013 4.3 Sportech Forgivable Loan Motin asked if the request meets the requirement for 51% of new jobs hires to be at the Low to Moderate Income (LMI) level. Ms. Hout discussed the LMI job requirements. She noted that Sportech has indicated they will be creating 6 — 10 jobs, with most of those being engineers,but that they will also be creating other jobs. She stated that the agreement could specify 3 or 4 LMI jobs. Ms. Hout stated that she will be meeting with Eric Stack of Sportech to discuss the loan agreement. She stated that if the Finance Committee was comfortable making a recommendation, the project could go forward to the EDA meeting on Monday (December 16`h) for approval of the amount of assistance,with the agreements to be completed in January. Motion by Motin and seconded by Ovall to recommend the EDA approve the Sportech Forgivable Loan in the amount of$111,155.13,provided Sportech is able to meet the necessary requirements. Discussion followed regarding Sportech's request and what the monies will be used for. Further discussion followed regarding job requirements and reporting. Ms. Huot noted that if Sportech does not meet the Low to Moderate Income (LMI) requirements, they will be required to pay the money back. Motion carried 5-0. 4.4 4`' Micro Loan Policy Mr. Barnhart introduced this item. Ms. Knoof stated that Economic Development staff identified areas of need based on a tour with Elk River Chamber President, Debbi Ryberg. She discussed possible uses for funding such as updating signage, ADA compliance,improved access to retail areas, landscaping, storefronts, and rehabilitation of the Railroad Drive area, as well as the Highway 10 residential rental areas near Quinn and Proctor Avenue. Motin stated that the Proctor/Quinn and Railroad Drive areas are already under discussion for future redevelopment. Ms. Knoof stated that specific areas to use the money could be identified within the future redevelopment areas. Ms. McDowell Poehler stated that buildings must be blighted to qualify as a redevelopment tax increment district. She explained that sometimes when "band aides" are put on areas to improve aesthetics and then don't end up qualifying for redevelopment. She stated that the goal is balance when looking at small grant programs. She explained that they may accomplish getting them up to code,but then later,in the big picture, they don't meet the criteria for redevelopment. Ms. Knoof stated that she has spoken with commercial realtors who see a need for funding to help private sector businesses with SAC and WAC fees and infrastructure. She suggested use of the fund for subsidizing rent for new startup businesses in the PyUIEDED DY NATURE Finance Committee Minutes Page 5 December 10,2013 downtown; such as free rent the first year, a certain percentage the second year, and a lower percentage the third year. Motin suggested looking at options for using the funding to attract dining businesses. Ms. Knoof suggested the Houlton Farm barn could be converted to a fine dining destination using local foods, and possibly as food business incubator for locally produced food products. She further suggested creating a kitchen in the barn that could be leased out to a private or non-profit business. Toth stated he was convinced of the concept for a fourth microloan fund. He asked why they are looking at this. Ms. Knoof explained that the funds are from DEED and DEED is telling the city they need to use the money. Ms. McDowell Poehler stated that the $403,000 must be separated from the existing programs. Ms. Knoof noted that they have not been given specific criteria from the state,just that they need to use the money. Motin asked if there is anything from stopping the city from splitting the funding into two uses— for the Mississippi Connections implementation and another use. He stated he was not in favor of the idea of fourth loan program. Ms. Knoof stated that in discussing this issue with Mr. Beeman,it was her understanding that the feedback from finance committee was to have options for broader use of the funds. Ms. Knoof stated these are all ideas that staff found in looking at what other cities are doing. Motin suggested the loans could be forgivable by meeting criteria, such as meeting job goals 100% over five years. Ms. McDowell Poehler suggested they look at creating a program with jobs and business development as the primary goals. She stated they could call it a jobs program or a business development program,which could be open to any business that created jobs. Toth asked if this type of program would have been something the bakery could have used when moved into to second building. Ms. Knoof noted that the Blue Egg did use a micro loan with the EDA. Mr. Barnhart suggested the program could be used for job generation for small businesses regardless of location. The program could be used as supplement if a business doesn't meet the criteria for the other three programs. Ovall asked if there was anything prohibiting them from using the money for lease hold improvements. He stated there are some older buildings that need improvements and could be tied to job creation,as well. Motin asked if the loans would be made to owners or tenants. Ms. McDowell Poehler stated the loan would likely need to be with the building owner if improvements are being made to the building. Ovall stated that owners sometimes finance lease improvements to reduce vacancies. He also is aware of numerous times tenants have financed with the SBA P O / E R E D A Y NATURE Finance Committee Minutes Page 6 December 10,2013 for leaseholder improvements. He stated that jobs and business development seem to be their main goals and could be the primary driver for this loan. Ms. McDowell Poehler stated the new program needs to supplement what city already has in place,just for a different purpose. The next step would be drafting the requirements. Discussion followed regarding the following: • Using this loan when an applicant does not qualify for any other loans • Requiring job creation that does not meet the criteria of the other three micro loans • Establishing a higher loan amount (i.e., $74,999) • Loan would go to market rate interest or an established default interest rate if a recipient does not meet the job goals. Mr. Barnhart stated that staff will bring a draft back to the Finance Committee in January. 5. Adjournment There being no further business,Jeremy Barnhart adjourned the meeting of the Finance Committee at 9:04 a.m. a4;V Jeremy arnhart Deputy Director Community Operations and Development , /f7' Tina Allard, City Clerk PONEfFU / 1 NATURE